Monthly Archives: August 2013

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The future of energy-efficiency holds some interesting technology. In fact, Navigant Research is predicting that smart glass, which can help improve energy performance while increasing occupant comfort and satisfaction, will grow to an annual market value of $899 million by 2022 — up from $88 million in 2013.

Building glass, both in the form of facades and windows, is one of the most susceptible to energy loss. Driven by the need for better insulated zero-carbon buildings, a new generation of actively controlled components is replacing conventional materials. Smart glass, which provides dynamic glare, light and heat control based on manual controls or ambient conditions, is able to respond to seasonal variations in temperature and solar radiation and will increasingly be used in the building sector as building codes are becoming stricter and energy performance is growing in importance to building owners.

“The past year has seen several positive developments for the smart glass sector, including the establishment of new industrial-scale production capacity, increased levels of investment, and partnership announcements between smart glass technology companies and upstream and downstream suppliers and participants,” said Eric Bloom, senior research analyst, Navigant Research. “Still, this sector is in formation, and growth is likely to accelerate in the years after 2022.”

Currently, the biggest barrier to the adoption of smart glass is price, which is a least double what the end user would be paid for static, high-performance glazing, according Navigant.

While there may be ways to drive down the overall budget impact of selecting smart glass — for example, through selective use of the glazing on certain building elevations or through savings on HVAC based on the reduced cooling loads afforded by smart glass — cost will remain a limiting factor.

Most if not all homeowner policies contain a provision entitled “Suit Against Us” which sets forth the time limitation to file a lawsuit against the insurer under the policy. In California, insurance companies can contractually require that the lawsuit be commenced within one year after the date or “inception of the loss.”1

But what if the loss occurs before any damage is discovered by the insured? Does the one-year run from the actual occurrence of the event causing the loss or from the date of the insured’s discovery of the damage? It is conceivable the insured’s awareness of the loss or damage does not coincide with the date of occurrence. For instance, wind or hailstorm damage to a roof might not become apparent to a homeowner until experiencing a roof leak. That is unlike damage resulting from a fire which would be readily discernable or apparent.

California courts have adopted the “delayed discovery rule” for first-party cases. The rule holds an “insured responsible for initiating a claim based on the date on which the insured could reasonably have concluded his property suffered a loss.”2 Moreover, the “’inception of the loss’ means that point in time at which appreciable damage occurs so that a reasonable insured would be on notice of a potentially insured loss.”3 Furthermore, the “inception of the loss” should be “determined by reference to reasonable discovery of the loss and not necessarily turn on the occurrence of the physical event causing the loss.”4

Accordingly, the delayed discovery means an insured’s lawsuit on the policy will be deemed timely if filed within one year after “inception of the loss.” [If a business policy is involved, the contractual time limitation is typically two years.] It is important to note however, that to take advantage of the delayed discovery rule the insured is required to be diligent in the face of discovered facts. Any delayed discovery must be reasonable in light of the facts and circumstances. In addition, the insured still has a duty to promptly and diligently notify the insurer of the loss.5

Policyholders and those who assist policyholders must pay careful attention to the statute of limitations. If a policyholder has any doubt about the statute of limitations as it pertains to a particular case, it would be wise to consult an insurance professional. Otherwise, there is a risk that a potential recovery could be foreclosed.

1 Cal. Ins. Code §2071. (Outside of the insurance context, California has a four-year statute of limitations to file suit based on breach of a written contract.)

A California Appellate Court recently clarified the burden of proof for an insurance company seeking contribution from another insurance company in settlement of a construction defect action. When a company involved in construction is sued for allegedly causing property damage to the building or structure it built (i.e. a construction defect), the company typically turns to its commercial general liability insurance policy. Depending on the nature of the defect claim the construction company may have more than one policy that could potentially provide coverage. Different insurance carriers may respond to their insured’s tender in different ways. When one carrier agrees to defend and indemnify its insured from a claim potentially covered by another carrier, but the second carrier refuses to cover, the first might settle the claim and then seek a court ruling that the second provide “equitable contribution” to the settlement amount paid. In that situation, what does the settling carrier have to show? That the claim was absolutely and certainly with in the coverage of the second insurance policy?

The case concerned an apartment complex that had been converted to condominiums, and the condominium owners’ Homeowners Association sued the developer for various construction defects. The developer had two insurance policies governing different time periods that potentially provided coverage. One carrier accepted the developer’s tender, but the second did not and instead reserved its rights to argue that the claim was not covered by its policy. The first carrier went on to settle the matter, and then sued the second for equitable contribution. The question, of course, was whether the second carrier’s policy really provided coverage. What did the first carrier have to prove? The Appellate Court held that all that the settling insurer need do is demonstrate that there is “potential coverage”, but does “not have to prove actual coverage.” Once the settling carrier makes this prima facie showing of potential coverage, the burden shifts to the non-settling carrier against whom equitable contribution is sought to prove that there was no coverage. Axis Surplus Ins. Co. v. Glencoe Ins. Ltd. (2012) 204 Cal.App.4th 1214.

Earlier this month, the California Supreme Court issued its highly anticipated decision in the case Zhang v. Superior Court of San Bernardino County.1

The Court addressed the question of whether insurance practices that violate the Unfair Insurance Practices Act (UIPA)2 can support an action based on the Unfair Competition Law (UCL).3

The short answer is yes.

In Zhang, the plaintiff in her UCL claim, alleged that her insurance company had “engaged in unfair, deceptive, untrue, and/or misleading advertising” by promising to provide timely coverage in the event of a compensable loss, when it had no intention of paying the true value of its insureds’ covered claims. The insurer contended that the UCL claim was an attempt to plead around the rule established in Moradi-Shalal v. Fireman’s Fund Insurance Companies,4 which precludes a private cause of action for the insurer’s commission of various unfair practices listed in Insurance Code § 790.03(h).

The Court held that although violations of Insurance Code § 790.03(h) are themselves not actionable, insureds can still sue under the UCL on grounds independent from the UIPA.

According to the Court, the UCL which prohibits “any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising”5 does provide alternate grounds for relief. In addition, insureds can still retain common law bad faith claims against the insurer.

There are limitations to a UCL claim with respect to available remedies. For one, a plaintiff must be able to show economic injury caused by the unfair competition. Second, the UCL remedies are equitable in nature and rather narrow in scope. Generally, prevailing plaintiffs are entitled to restitution and injunctive relief and cannot recover compensatory damages or attorney fees.

It will be interesting to see whether more UCL claims, especially those that are predicated on false advertising claims, will be brought against insurance companies if not individually, but perhaps as class actions.

An important new case regarding New Hampshire Mechanics Lien Law has application for contractors in all states and reminds the industry of how painful uncollectible debts can be. In Moultonborough Hotel Group decided on July 18, a hotel developer was building the Hampton Inn and Suites in Tilton, New Hampshire. ROK Builders, LLC, the general contractor, was owed approximately $2.5 million at the conclusion of the project.

The developer had received some mid-project financing after cash flow issues and the new finance company received a final lien waiver from ROK, indicating that it was waiving its mechanics lien claim through the payment date even though it had not been fully paid when the waiver was submitted. ROK also was not aware that the financing entity had stopped making payments to the developer. The hotel opened in June of 2008 and financial problems resumed quickly. Moultonborough ultimately filed for bankruptcy restructuring in 2009 in New Hampshire Federal Court.

ROK asserted in the bankruptcy court that it was entitled to be paid before the construction lender because work began ROK had started work prior to the recording of the mortgage. The First Circuit Court held that because the lender had no knowledge of any claims that ROK had at the time the mortgage was recorded, and the lender had advanced funds to the developer to pay contractors on the project, the lender had priority over the after-asserted mechanics lien by ROK. The court also noted that ROK had signed a final lien waiver indicating that it had been paid and that it had waived any mechanics lien rights, distinguishing this case from New Hampshire precedent.

This harsh result leaves ROK as an unsecured creditor. Unsecured creditors in bankruptcies typically get paid pennies on the dollar on their claims, if at all.

This case presents two important lessons for contractors in all states including Maine and New Hampshire:

Lien waivers must be accurate when signed. One shouldn’t say they have no claim and have been paid, when they have a claim and have not been paid.

Bankruptcy is the ultimate payment risk for a contractor. Contractors should not wait to assert their mechanics lien rights. Continuing to do work and not fully asserting one’s mechanics lien rights can be the difference between being paid fully under a mechanics lien, or not being paid at all.

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